Road Infrastructure in India

January, 2015

Introduction

India has the second largest road network in the world at 4.7 million km. This network transports more than 60 per cent of all goods in the country and 85 per cent of India’s total passenger traffic. Road activity has gradually increased over the years with the improvement in connectivity between cities, towns and villages in the country.

With automobiles and freight movement also growing at a rapid rate, the necessity for a road network good enough to carry the traffic is paramount. Understanding this need, the Government of India has set aside 20 per cent of the investment of US$ 1 trillion reserved for infrastructure during the 12th Five-Year Plan (2012–17) to develop the country's roads.

Market Size

The value of roads and bridges infrastructure in India is projected to grow at a compound annual growth rate (CAGR) of 17.4 per cent over FY12–17. The country's roads and bridges infrastructure, which was valued at US$ 6.9 billion in 2009 is expected to touch US$ 19.2 billion by 2017. The financial outlay for road transport and highways grew at a CAGR of 19.4 per cent in the period FY09-14. For FY14, India’s Planning Commission provided an outlay of US$ 6.9 billion for the roads segment.

Investments

Japan has offered to assist India in developing Intelligent Transport Systems (ITS) in urban areas of the country. The two countries have identified new areas of co-operation in urban development sector.

Some of the key investments and developments in the Indian roads sector are as follows:

After firming up funding for road projects worth Rs 1,000 crore (US$ 162.23 million), L&T Infra Debt Fund Ltd, the project refinancing arm the L&T Group, is working to sanction funds of a similar magnitude in the quarter ending December. Mr Shiva Rajaraman, Chief Executive, L&T IDF, said this financial year is the first full year of operations for the company and it has already approved financing for 10 proposals for about Rs 1,000 crore (US$ 162.23 million).

IL&FS Engineering and Construction Co. Ltd has won a Rs 1,232 crore (US$ 199.86 million) order from National Highways Authority of India (NHAI) for widening the 127 km Patna-Gaya-Dobhi section of NH 83 in Bihar. The project will be executed with funding from Japan International Cooperation Agency and is estimated to be completed within 1,095 days from the date of commencement of work.

IRB Infrastructure Developers Ltd has bagged the contract to operate and maintain the Mumbai–Pune Expressway and the old Mumbai–Pune highway till 2023. The concession period for this project is over eight years and IRB will be allowed to collect toll for four years staring 2019. IRB's previous contract to operate the two roads ends in 2019.

The environment ministry has given the go-ahead to three projects and finalised terms of reference for two more to be constructed on the Delhi–Mumbai Industrial Corridor (DMIC).The projects, which received clearance on July 30, 2014, were the Dholera investment region in Gujarat, Manesar–Bawal investment region in Haryana, and Khuskhera–Bhiwadi–Neemrana investment region in Rajasthan.

The Canada Pension Plan Investment Board (CPPIB) plans to invest about US$ 332 million in infrastructure projects in the country through an investment with Larsen & Toubro (L&T). The Toronto-based pension fund manager will first invest about US$ 166 million in L&T's unit, L&T Infrastructure Development Projects Ltd, and later invest an additional US$ 166 million within 12 months of the initial investment.

Government Initiatives

The Minister of State for Road Transport and Highways, Mr Pon Radhakrishnan has informed that the Government has launched major initiatives to upgrade and strengthen 54,478 kms of National Highways (NH) in the country including the State of West Bengal through various phases of National Highways Development project (NHDP), out of which 22,345 km have been completed and 12,625 km are under various stages of implementation till October 31, 2014. Balance length will also be completed in a phased manner.

He said that during the current year National Highways of 8,500 km in length are targeted to be undertaken under various schemes of the Ministry. The scheme-wise targets are: National Highway Development Project (NHDP, 6,500 km), National Highways Interconnectivity Improvement Programme (NHIIP, 500 km), Special Accelerated Road Development Programme in North-East (SARDP-NE, 1000 km) and Left Wing Extremism (LWE, 500 km). So far 3,419 km of National Highways has been undertaken during the current year.

Also, the highways ministry has showcased revival of 34 projects worth more than Rs 26,000 crore (US$ 4.21 billion) in its latest presentation on infrastructure targets to Prime Minister Mr Narendra Modi, saying the projects spanning over 4,084 km are being restructured or converted from public-private partnership to engineering, procurement and construction (EPC) mode to get them going. Of these, five projects have been handed over to the state governments concerned while another 18 will be awarded in EPC mode.

India’s Prime Minister, Mr Narendra Modi has outlined a broad vision for new modes of infrastructure development in India, which includes nationwide connectivity networks of roads, gas grids, water grids and power transmission lines. Mr Modi dedicated to the nation four laning of Pune–Solapur National Highway No. 9 section and the 765 kV Raichur–Solapur transmission lines. India and Japan have taken steps to improve investment between the two nations. As part of India–Japan Strategic and Global Partnership, the two sides launched a Special Economic Partnership Initiative (SEPI), including the Delhi–Mumbai Industrial Corridor (DMIC) project.

The Indian government plans to set up a finance corporation with an amount of Rs 1 trillion (US$ 16.22 billion), in collaboration with Japanese investors, to fund projects in the roads segment. The Japanese partners are expected to have a 26 per cent stake with assured returns of nine per cent, according to an official source.

Road Ahead

India's growing population requires a robust infrastructure. The government, through a series of initiatives, is working on policies to attract significant investor interest.

The Indian government plans to develop a total of 66,117 km of roads under different programmes such as National Highways Development Project (NHDP), Special Accelerated Road Development Programme in North East (SARDP-NE) and Left Wing Extremism (LWE), and has set an objective of building 30 km of road a day from 2016.

Also, about two-thirds of NHDP road projects (ex-phase IV) have not been awarded as yet, thus offering a massive opportunity to private players in future.

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